In July, the American pharmaceutical giant AbbVie, maker of the world’s top-selling drug – the arthritis treatment Humira – reached a blockbuster deal to acquire European rival Shire, best known for the attention-deficit medication Adderall. The merger was cheered by Wall Street, not for what the deal will do to advance pharmaceutical science, but because it will empower the bigger firm, AbbVie, to renounce its U.S. citizenship.

At $55 billion, the AbbVie deal is the largest in a cavalcade of corporate “inversions.” A loophole in American tax law permits companies with just 20 percent foreign ownership to reincorporate abroad, which means that if a big U.S. firm acquires a smaller company located in a tax haven, it can then “invert” – that is, become a subsidiary of its foreign-based affiliate – and kiss a huge share of its IRS obligations goodbye.

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AbbVie shareholders will continue to control 75 percent of the company, which will still be managed by executives outside Chicago. But the merged company will now file its tax returns on the island of Jersey – a speck of land in the English Channel, where Shire is incorporated. AbbVie, which racked up more than $10 billion in Humira sales last year, will slash its effective corporate tax rate from 22 percent to 13. The cost to the U.S. Treasury? Possibly as much as $1.3 billion by the year 2020.

Companies striking deals to become technically foreign can be found in all corners of American business, from California computer-equipment manufacturer Applied Materials to Minnesota medical-device giant Medtronic to North Carolina­based banana behemoth Chiquita. Little is changing in the core business of these firms. They will just pay less in taxes – and to a foreign government, often Ireland or the Netherlands.

These tax turncoats have drawn the ire of President Obama. “I don’t care if it’s legal,” he declared this summer. “It’s wrong.” These inverted companies, he said, “don’t want to give up . . . all the advantages of operating in the United States. They just don’t want to pay for it.”

With Congress gridlocked, Obama is vowing to tackle the problem on his own – as he has done to advance his agenda on LGBT equality and immigration reform. In August, he threatened “quick” executive action to “at least discourage” inversion schemes. But pressed for specifics, the president conceded the White House has no silver bullet. In fact, Treasury Secretary Jacob Lew had declared only weeks earlier, “We do not believe we have the authority to address this inversion question through administrative action. If we did, we would be doing more.”

Over the next decade, corporate inversions could cost the U.S. Treasury nearly $20 billion – revenues that could other­wise pay for Head Start programs, to rebuild roads and bridges, or just bring down the deficit. The wave of inversions is threatening “to hollow out the U.S. corporate income tax base,” Lew warned in a July letter to the chief tax writers in the House and Senate. But inversions are just the tip of the iceberg. The crisis of corporate tax avoidance is far more pervasive – and destructive – than either Obama or Lew is letting on. At a moment when Congress appears impossibly divided, a strong, bipartisan consensus has, in fact, emerged in Washington: The world’s richest corporations will get away with fleecing hundreds of billions of tax dollars from the rest of us.

In public, Democratic politicians blast corporate tax dodgers. But the party’s most viable comprehensive “reform” proposals would reward the crooked accounting of U.S.-based multinationals. Republican­backed legislation – no surprise – would only make the crisis worse. Why? “It’s not rocket science; it’s money and politics,” says Jared Bernstein, former top economic adviser to Vice President Joe Biden. “Concentrated wealth is buying the policy agenda it likes, and blocking one it doesn’t.”

Last year the IRS finally collected more in tax receipts than it did before the crash in 2007. But dig a little deeper into the numbers and it is clear we haven’t returned to normal: Corporations paid nearly $100 billion less in federal income taxes last year than before the Great Recession – down nearly 40 percent as a share of GDP. In fact, corporate profits and corporate tax collections are now trending in opposite directions. Profits were up $93 billion last year – to a high of $2.1 trillion, according to the Commerce Department. Yet corporate tax payments actually fell last year by more than $15 billion.

How is this possible?

It goes way beyond inversion. The top names in American business – from Apple to Xerox – have joined in the greatest tax dodge in world history. Using clever accounting games, these corporations have siphoned majestic sums out of the country and into tax-haven shell companies – where the money is untouchable by the IRS.

The numbers are staggering. More than $2 trillion in U.S.-based multinational profits currently sit in offshore accounts, representing, by credible estimates, in excess of $500 billion in unpaid taxes. If that money were deposited in federal coffers tomorrow, it would wipe out the deficit for 2014. And every year that Congress dithers on a crackdown, America is forfeiting an approximate $90 billion in revenue.

The details of corporate tax avoidance can be dizzyingly complex. But the broad strokes are simple. For more than a century, American corporations have been required to pay taxes on their global income. There’s no double taxation problem; companies receive credit for taxes paid over to other governments. The logic of our system is straightforward: U.S. corporate citizens enjoy benefits that aren’t cabined inside our borders. The U.S. Navy secures shipping lanes needed to transport goods from Chinese factories to ports around the world. The American legal system protects corporate patents and other intellectual property worldwide. U.S. taxpayers fund the R&D that makes many of these corporations profitable in the first place.

There is one odd hitch in our system of global taxation. The corporate tax bill – nominally 35 percent – is not due in America until the foreign profits come home. In the jargon of the corporate world, the taxes are “deferred” until the profits are “repatriated.” Until then, the offshore cash can be invested and grow U.S.-tax-free, not unlike your 401(k).

In reality, much of the untaxed income is actually earned in the United States before elaborate accounting schemes siphon it overseas. The racket is simplest for tech and pharmaceutical companies, whose value is tied to intellectual property. According to David Cay Johnston, author of Perfectly Legal: The Covert Campaign to Rig Our Tax System to Benefit the Super Rich – and Cheat Everybody Else, Pfizer provides a prime example. When the company was developing Viagra, it transferred the economic rights to its intellectual property abroad, ultimately to a shell company in Liechtenstein – an infamous European tax haven. On each sale of the drug here, the European subsidiary charged the U.S. parent company a steep royalty – payment of which moved the profit from high-tax America to low- to zero-tax Liechtenstein.

Adding insult to injury, this self-dealing creates a phantom business expense in the United States. “They get a tax deduction in America while they pile up the money in another country, tax-free,” says Johnston.

Contrary to what the term “offshore” might suggest, these untaxed profits are not stranded. “There’s this false notion that these funds are locked in a strongbox somewhere,” says Edward Kleinbard, a former chief of staff for Congress’ Joint Committee on Taxation. In reality, these untaxed foreign profits are often banked, by the offshore subsidiaries themselves, in Manhattan – where they’re used to invest in stocks and U.S. Treasury bonds. “The money,” says Kleinbard, “is already back in the U.S. economy.”

Worse, equally convoluted accounting sleights of hand can be used to make the untaxed income – or at least its financial power – available to fund daily corporate operations in the U.S., or just enrich shareholders. The ratings agency Standard & Poor’s recently coined a term to describe this practice: “synthetic cash repatriation.”

Take Apple, which wanted to reward investors last year with a $60 billion stock buyback that would boost the company’s share price. Apple did not have enough cash in its American accounts to complete the deal. And the company couldn’t legally tap its “offshore” billions (reportedly banked in Manhattan) without paying U.S. taxes.

To sidestep the law, Apple borrowed the cash, using the largest corporate bond offering in history to raise $17 billion in the States. Thanks to the massive piles of offshored cash and securities on its books – presently more than $137 billion – Apple’s net cost of borrowing was minuscule, about 1.57 percent. Apple liked this trick so much it repeated it – raising another $12 billion in April this year. Shareholders got their reward. Only Uncle Sam was cut out of the deal.

The crisis in multinational corporate tax avoidance is growing exponentially. According to an analysis by Audit Analytics, the indefinitely reinvested foreign earnings of the firms in the Russell 1000 Index surged from $1.1 trillion in 2008 to more than $2.1 trillion in 2013. That latter figure is greater than the GDP of Russia.

“The things these companies are doing, 20 years ago would almost certainly have been illegal,” says Bob McIntyre, president of Citizens for Tax Justice. “But now you’ve got so many big, powerful corporations doing it that it’s the norm.” Systematic avoidance helps explain why corporate income taxes – one-third of federal revenue in the 1950s – have now dropped below 10 percent of Treasury receipts today.

Many in corporate America justify this rampant tax dodging by arguing that the 35 percent corporate tax rate in the U.S. is too high. In reality, our system offers big corporations so many other tax favors that the effective tax multinationals pay on their U.S. profits is often lower than what the same companies pay in other developed nations. “The constant corporate whining that they’re overtaxed in the United States,” McIntyre says, “is bullshit.”

America confronted – and largely dealt with – the issue of international tax loopholes once before. A half-century ago, the Kennedy administration understood that American corporations were using accounting gimmicks to shift untaxed profits overseas. “Deferral has served as a shelter for tax escape through the unjustifiable use of tax havens,” President Kennedy said in 1961. Congress eventually agreed on new laws that drew a sharp line between “active” income – earned from selling real-world goods and services – and “passive” income, the easily manipulated paper profits generated from financial transactions. The former would still qualify for the deferral tax break; the latter would be taxed immediately.

The Kennedy-era reforms kept corporate tax avoidance substantially in check through both Democratic and Republican administrations. Even Reagan cracked down on multinational tax dodgers with the tax reform of 1986. But changes in recent years – including one in 1997 and another in 2006 – have, according to a recent Senate investigation, “nearly completely undercut” the ability of the Treasury to tax the paperwork profits of multinationals. The original sin was committed by the Clinton Treasury – then led by Robert Rubin, later a top executive at Citigroup and a major player in the subprime mortgage crisis. In 1997, Treasury changed regulations to permit corporations to decide for themselves which subsidiaries were relevant for tax purposes, simply by ticking off a box on a tax form. But these changes, intended to simplify the tax code, also opened a colossal loophole.

Corporate accountants were gleeful. Tax watchdogs were horrified. “The stupid Clinton Treasury,” McIntyre says bitterly. “They were warned about this before they put out the regulations. Then they discovered that all the people who were telling them they were idiots were right.”

For a brief moment, Treasury sought to reverse course. But lobbyists from firms including Monsanto, Morgan Stanley, IBM and Philip Morris locked arms to defend their de facto tax cut. The Clinton Treasury backed down. Soon, some administration officials took a spin through the revolving door – raising troubling questions about the relationship between corporate America and its regulators. William Morris, who became the Clinton Treasury’s associate international tax counsel around the time the regulations were enacted, jumped to GE, where today he orchestrates the firm’s global tax policy.

The great corporate tax dodge exploded under the presidency of George W. Bush. By 2004, American multinationals had siphoned hundreds of billions of dollars offshore. Far from cracking down, the Republican Congress rewarded corporate tax dodgers with a “repatriation tax holiday.” Multinationals were invited to bring home their overseas earnings – to be taxed at a measly 5.25 percent.

This tax giveaway was part of Bush’s American Jobs Creation Act and sold to the public as a way to provide a shot in the arm to the U.S. economy. More than $300 billion came home – nearly 80 percent of it from locations the U.S. government considers tax havens. But the tax holiday didn’t spur investment, growth or jobs. In fact, the top 15 participants, after bringing home a collective $150 billion, proceeded to slash 20,000 jobs. The act did little more than make rich investors even richer. A huge proportion of each repatriated dollar – between 60 and 92 cents – wound up in the hands of shareholders.

The Bush tax holiday also “dangled in front of every CFO in America the expectation that there would be another tax holiday, and another after that,” says Kleinbard. Eager to reassure corporate America that pipelining profits offshore was now kosher, Congress enacted little­debated legislation in 2006 that codified tax exclusions enabled by the decade-old check-the-box rules. The accounting boondoggle was now doubly entrenched – in law and regulation. The impact was stark: In 2006, corporations held roughly $600 billion offshore. That sum would soon double, then triple.

In his first campaign for president, Barack Obama called for “ending tax breaks for companies that ship jobs overseas” – shorthand for repealing tax deferrals on offshored corporate profits. But upon taking office in 2009, Obama lowered his sights, proposing more modest reforms, including elimination of check-the-box and a limit on tax deductions linked to offshore profits. Despite preserving deferral, these reforms were still projected to raise $210 billion over a decade. And Obama continued to talk tough. In May of that year, he denounced our “broken tax system, written by well­connected lobbyists,” and promised to “restore fairness and balance to our tax code.”

But even these proposals ran into a corporate buzz saw. Around 200 multi­nationals, including top backers of Democrats, had joined forces in a campaign spearheaded by the Business Roundtable and the U.S. Chamber of Commerce. Ken Kies, a top lobbyist for companies including GE and Microsoft, told reporters, “This is going to be the biggest fight for the corporate community in the next two years.”

The corporate blitz worked. The new president, who’d won more votes than Ronald Reagan, backed down. “We were doing the Recovery Act, health care reform and financial reform,” says Bernstein, Biden’s former economic adviser. “Adding a massive fight with multinational corporations just wouldn’t have been smart.” Far from ending the abuses of corporate tax avoidance, the Obama administration has since become complicit. The president has twice signed legislation reauthorizing the Bush law that effectively codifies check-the-box. The provision is among a package of “tax extenders” – including loopholes favored by both parties – that Congress habitually tacks on to other, must-pass legislation. These corporate giveaways were last rubber-stamped in the 2013 bill that pulled America back from the “fiscal cliff.”

Without meaningful resistance from Congress, corporations are pressing forward with abusive tax schemes. Two recent Senate investigations offer a window into the dark arts of corporate America’s tax avoidance.

Apple’s tax strategies in particular have come under the microscope. On a recent earnings call, the Silicon Valley giant announced it has parked $137.7 billion offshore. In its own SEC filings, Apple has revealed it would have to pay nearly 33 percent in U.S. tax – some $45 billion – to repatriate those offshored earnings. That would be more than enough to fund NASA for the next two years.

According to Senate investigators, Apple makes use of “ghost companies,” incorporated in Ireland as “a conduit for shifting billions of dollars in income from the U.S.” From 2009 to 2012, Apple booked $30 billion in income to a subsidiary called Apple Operations International, an entity with no official employees. But thanks to overlapping loopholes in Irish and American tax law, AOI has not been forced to declare itself a tax resident of either country. As a result, for the past five years, it filed no returns, and its profits weren’t taxed by any government. “Apple sought the Holy Grail of tax avoidance,” said Sen. Carl Levin, D-Mich., chairman of the Permanent Subcommittee on Investigations. Apple, for its part, insists that its accounting practices are legitimate. “We pay all the taxes we owe,” said CEO Tim Cook, testifying before Congress in May 2013.

While tech firms and Big Pharma have long made use of accounting tricks to offshore profits, big industrial concerns have not, historically, been able to play games to the same degree. That’s no longer true. Starting about 15 years ago, heavy-equipment manufacturer Caterpillar paid accounting firm PricewaterhouseCoopers $55 million to create a scheme to “migrate profits” from the U.S. to Switzerland.

With no change to its core business, Caterpillar began booking earnings from its U.S.-managed parts business in Geneva – after first negotiating a deal with Swiss authorities to tax those earnings at four to six percent. From 2000 to 2012, Caterpillar shifted more than $8 billion in taxable income to Europe, deferring $2.4 billion in U.S. taxes. “In the fantasy­land that is international tax law,” Levin said, “tax lawyers waved a magic wand to make millions of dollars in U.S. taxes disappear.”

The real problem with multinational corporate tax avoidance is not that the firms are breaking the law. It’s that the law itself is broken. “Most of what they’re doing is completely legal,” says a top Senate tax staffer. “The problem is with the system that allows them to do it.”

Democratic Senate Finance Chairman Ron Wyden has long sought to overhaul the corporate tax system. Wyden talks like a progressive champion, likening the current tax code to “a rotten carcass that the special interests feast on.” He has introduced legislation that would eliminate deferral for all international corporate profits, which would be a huge victory for taxpayers. According to a Joint Committee on Taxation estimate, forcing companies to pay taxes on their profits as they’re earned would raise around $600 billion over 10 years.

If only Wyden had stopped there. In an attempt to draw support from tax-phobic GOP lawmakers, Wyden would actually give away all that revenue – plus $200 billion more over the first decade, according to the Tax Policy Center – by slashing the U.S. corporate tax rate to just 24 percent. Wyden insists that this low rate would both keep high-skill, high-wage jobs at home and deter companies from “manipulating the tax code to set up shop overseas.”

“The morons in Congress are either unbelievably disingenuous,” H. David Rosenbloom, who directs the international tax program at NYU’s law school, says, “or too stupid to understand this.” There’s no way the U.S. can set its tax rates low enough to compete with tax-haven nations like Ireland, he says, and still run a global superpower.

Wyden has also called for a repeat of the 2004 tax holiday – allowing offshored cash to come at the discounted rate of just 5.25 percent. On $2.1 trillion in offshored earnings, that could give these companies close to a half-trillion-dollar tax break. Wyden calls the corporate giveaway “a sensible transition.”

The best that can be said of Wyden’s approach is that by ending deferral and making schemes to offshore U.S. profits moot, it would stop the bleeding. In contrast, the top Republican proposal, developed by House Ways and Means Chairman Dave Camp, would rip open new arteries. Like Wyden, Camp would also slash the overall corporate tax rate – to 25 percent. In lieu of a tax holiday, he would impose a “transition tax” on offshore profits, from 8.75 percent to as low as 3.5 percent. Camp’s legislation “solves” the problem of deferred offshore profits by largely surrendering the United States’ right to tax corporate earnings booked abroad – making our international tax system “even more of a mess than it is now,” writes McIntyre.

This is the reality of our political system in 2014: In what should be a titanic battle between multinational corporate power and federal power, our elected representatives are hardly putting up a fight. Obama has been a sharp critic of corporate tax avoidance. Yet the offshore corporate earnings stash has nearly doubled on his watch. Senate Majority Leader Harry Reid has unleashed blistering attacks on corporations like Walgreens that have threatened to renounce their U.S. citizenship for tax purposes. And he has said he’s “ready to roll” on a vote for a (sure-to-fail) Democratic bill that seeks a two-year moratorium on inversions. Yet Reid has also been shopping a stand-alone tax-holiday proposal, rewarding multinational tax avoiders with a 9.5 percent rate. Reid’s partner in this effort? Kentucky Republican Rand Paul – who’s been courting right-wing billionaire David Koch. “Rand’s got good ideas,” Koch told The Wichita Eagle in July.

The American people want change: Two-thirds of Americans believe large corporations should be paying higher taxes, and 80 percent believe corporate loopholes should be closed. But Washington isn’t listening. The kid-glove treatment of corporate tax offenders by both parties is exhibit A in America’s shift from a functioning democracy to a nascent oligarchy. It aligns with a recent study conducted by Princeton and Northwestern that concluded “organized groups representing business interests have substantial independent impacts” on federal decision making, while the interests of average Americans “appear to have only a minuscule, statistically nonsignificant impact.”

“Corporate tax breaks are beloved by those who take advantage of them,” says Bernstein. “You’re not going to change that without realigning a lot of politics.” Until that day comes, we’ll be living with the tax policy that multinational corporations have bought and paid for. Which means that you and I are stuck with the bills.